Talent agents get into film fundraising

As Hollywood studios make fewer movies in an effort to tighten their belts, top talent agencies quietly have sauntered into the void, becoming de facto bankers by enticing private equity money and wealthy outsiders to fund movies featuring their clients.

The trend marks a significant shift for Hollywood, where studios have long served as the largest source of film financing. The expanded role gives agencies more latitude in guiding the destinies of their clients and assures that artistic films continue to be made at a time when studios are taking fewer risks by emphasizing superhero sequels and franchises and in some cases forcing stars to take pay cuts.

“With movie stars, your first instinct was to go to the studios first -- now it’s not,” said Patrick Whitesell, a partner at Endeavor Agency, whose clients include actors Jude Law and Matt Damon. “Now you will think about going these alternative ways to get your movie financed. If you just put five more movies together, then you have five more opportunities to send your writer, actor or director to work.”

The changing relationship of studios and their stars was writ large this summer when Paramount Pictures cut loose Tom Cruise because he was too expensive, sending the actor and his agents at Creative Artists Agency scrambling to find backers outside the traditional studio system. On Thursday, CAA emerged victorious by brokering a deal that pairs Cruise and his producing partner, Paula Wagner, with private equity fund Winchester Capital Management, which will provide the production duo with $100 million for approved movie projects.

The expanding role of talent agents in the production process raises an age-old question: Is talent compromised when the people who represent them have a hand in financing their movies? The actors’ union has maintained for decades that agents are liable to put their own interests ahead of those of their clients if they are allowed to reap in the financial rewards of the projects they put them in.

Some financiers who have teamed up with talent agencies have had other complaints. Bob Yari, an independent film producer who joined with William Morris Agency in a pioneering effort in 2003, said agents tended to push projects because their clients were in them, not because they were financially sound.

“I don’t think it works,” said Yari, who has produced dozens of films including best-picture Oscar winner “Crash.” “There are too many conflicts of interests. The predominant motivation of the agency is client representation and that seems to take precedence over the profitability of a movie.”

For their part, agents say their remuneration from films they arrange financing for are so nominal that self-interest is not an issue. They say they can easily serve their clients as well as the financiers who back the projects.

Agents have long wielded power in Hollywood because of their ability to “package” films. Agencies link actors, directors and writers from their client list and present ready-made projects to a studio or a network. The packaging fees from those films and TV shows are the lifeblood of the agencies, sustaining them through work shortages and other periods of volatility.

Now agencies are looking to include financiers in that bundle to offset a contraction in the movie business as marketing and production costs have spiraled. By keeping the movie-making machinery churning, agencies ensure that clients get their paychecks and that agents get their 10% cut of those earnings.

“It’s a move to equalize control so that talent agencies have a major voice in the kinds of opportunities their clients get and are not beholden to the studios,” said S. Mark Young, a professor at USC’s Marshall School of Business who studies entertainment management. “The studios have lost so much money on so many movies and they are asking people to share the risk more and more.”

Studios in the last year have pulled the plug on several expensive bets and reneged on huge payouts to actors, asking big stars such as Jim Carrey to reduce their fees. Walt Disney Co., NBC Universal and Time Warner Inc. have all slashed their workforces or announced plans to do so in the last few months.

In recent years, the major agencies have brought in financially minded executives to spearhead their fundraising.

Although CAA and United Talent Agency often go to a short list of individuals willing to put its money at risk in movies, other agencies have looked to hedge funds and trolled overseas for money. International Creative Management enlisted a $100-million private equity fund to help finance film projects. Endeavor has signed with a large Japanese advertising agency to put money into client films, while Paradigm Agency has found sheiks and princes in the United Arab Emirates interested in financing Hollywood’s dream machine.

Talent agencies are tapping into a wider trend also embraced by among the major studios to outsource the financing of movies. Stand-alone independent financiers put money into a number of last year’s Academy Award contenders, such as “Brokeback Mountain” and “Good Night, and Good Luck.”

Bulging with capital, private equity funds have poured billions of dollars into the financing of movies in the last few years, sometimes in conjunction with the major studios.

An early partnership between a financier and a talent agency was Yari’s deal with William Morris to produce a slate of six films in 2003. One of the resulting projects, 2004’s “A Love Song for Bobby Long,” shows some of the pitfalls of allowing agents to guide the production process. The film, which starred two of William Morris’ biggest clients, John Travolta and Scarlett Johansson, ended up making less than $200,000 at the box office and was panned by critics.

“I don’t think I would do another one of those deals,” Yari said.

William Morris declined to comment on the partnership, which has two more films set to be released.

Until 2002, the Screen Actors Guild had a long-standing agreement with the agencies that barred them from the production business. Contrary to Yari’s observation, the union was convinced that agents would put their own investments ahead of the interests of their clients. The issue was deeply contentious for SAG, but ultimately it was not able to broker a new deal when the agreement expired.

Agents said that the standard protocol today was to function as if the agreement were still in effect. Yet because their role has been assailed, agents are tight-lipped about how they are being compensated under these new deals. The projects are structured in a variety of ways, sometimes providing agencies a minimal consulting fee or fees based on the performance of the films. Some agencies provide the service at no charge -- although they still collect their usual percentages from their clients in the projects.

Some of Hollywood’s biggest talents are now looking to tap into agencies’ money connections. For instance, instead of trying to persuade a major studio to open its wallet to make veteran screenwriter Tony Gilroy’s newest script, the agency lined up the money from a Boston developer who made a fortune building shopping malls.

“We are arranging financing for movies that could have been studio films and one of the ways we do this is by building them from inside the agency,” said Rick Hess, who oversees a team of six other agents that set up dozens of such deals a year at CAA for the likes of Cruise and Steven Spielberg.

CAA went to a handful of financiers they had identified as potential partners with Gilroy’s new script, called “Michael Clayton,” about a Manhattan lawyer who battles an evil conglomerate.

Developer Steven B. Samuels, who founded Santa Monica-based Samuels Media in 2004, read the script and met with Gilroy, who penned such blockbusters as “The Bourne Identity.”

Gilroy told him his vision -- he wanted to direct the picture himself -- and Samuels felt he could trust him with his investment. When CAA said it would draw upon its vast roster of movie stars to cast the movie if he funded it, Samuels bit. Shortly after, George Clooney signed on in the leading role.

“The beauty of what CAA is doing now is they are putting people in a room early on who can put the puzzle together and make the film go with or without the studios,” Samuels said.

claire.hoffman@latimes.com

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(BEGIN TEXT OF INFOBOX)

Talented fundraising

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Here are upcoming movies developed by talent agencies, their clients and the investors who funded or co-financed the projects:

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Agency: Creative Artists Agency

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Movie project: “Fur: An Imaginary Portrait of Diane Arbus”

/ Clients: Director Steven Shainberg and actors Nicole Kidman and Robert Downey Jr. / Investors: Minnesota Twins executive Bill Pohlad’s production company

Movie project: “Into the Wild” / Clients: Director Sean Penn and actors Marcia Gay Harden / Investors: Bill Pohlad’s production company

Movie project: “In the Valley of Elah” / Clients: Adapted and directed by Paul Haggis / Investors: Real estate mogul Steven Samuels

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Agency: Endeavor

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Movie project: “Rescue Dawn” / Clients: Actors Christian Bale and Steve Zahn / Investors: NBA star Elton Brand’s production company

Movie project: “Rogue” / Clients: Director Greg McLean and actor Michael Vartan / Investors: Union Bank and Media Rights Capital

Movie project: “Sicko” / Clients: Director Michael Moore / Investors: Comerica and Hakuhodo DY Media Partners

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Agency: International Creative Management

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Movie project: “Ferris Wheel” / Clients: Actors Nick Stahl and Dennis Hopper / Investors: NewBridge Film Capital and Bank of Ireland

Movie project: “Bella” / Clients: Actor Tammy Blanchard / Investors: Real estate magnate Sean Wolfington

Movie project: “Ruby Tuesday” / Clients: Produced by former client Mick Jagger, featuring Rolling Stones songs / Investors: Mick Jagger

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Agency: United Talent Agency

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Movie project: “Synecdoche, New York” / Clients: Writer-director Charlie Kaufman and producer Anthony Bregman / Investors: Yet-to-be disclosed individual

Movie project: Untitled Alan Ball Project / Clients: Writer-director Alan Ball and producer Ted Hope. Adapted from book by Alicia Erian. / Investors: Manufacturing billionaire Steven Rales

Movie project: “The Darjeeling Limited” / Clients: Writer-director Wes Anderson and actors Jason Schwartzman and Owen Wilson / Investors: Steven Rales

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Agency: William Morris Agency

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Movie project: “Bobby” / Clients: Actors Sharon Stone and Harry Belafonte / Investors: Belgian financier Michel Litvak

Movie project: “Away From Her” / Clients: Writer-director Sarah Polley and actor Olympia Dukakis / Investors: Echo Lake, a production company backed by private equity

Movie project: “10 Items or Less” / Clients: Director Brad Silberling and actors Morgan Freeman and Paz Vega / Investors: ClickStar, an Internet company founded by Freeman and Intel Corp

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Source: Times research